Corp! Magazine features Blue River’s Co-founder and Managing Partner, Bryan Berent in an article about the expected state of M&A in 2025.
/ Corp! Magazine / The pre-pandemic M&A market in Michigan was hot in 2019, but the last five years has never quite reached the same level of activity. Yet some statewide experts feel 2025 could be a banner year.
Any transactional growth that began this year is being driven by more certainty around interest rates and record amounts of capital that companies and private equity firms have to invest, says Tracy Larson, partner at Honigman and leader of the firm’s Mergers & Acquisitions group. There’s also some “pent-up demand” for deals left over from the pandemic, he said. National trends are largely following what Larson is seeing throughout Michigan.
“We’re seeing growth based on feedback from other firms that also handle high numbers of transactions each year,” Larson said. “(These firms) are getting aggressive in hiring talent internally with transactional experience.” Larson says that Honigman typically handles more than 500 M&A transactionally annually. Honigman has hired five new practice members with transactional experience since mid-summer.
Expected interest rate moderation from the Federal Reserve over the next few years will play a role as well, according to both Larson and Bryan Berent, managing partner for Blue River Financial Group, an investment bank specializing in transactions located in Bloomfield Hills. Rapidly rising or falling rates can make the business community more cautious about engaging in a deal.
Tracy Larson is the leader of Honigman’s Mergers & Acquisitions group.
“People are doing their homework, no question,” Larson said. “We’ve seen more underwriting work now than we have typically witnessed over the past decade.”
Berent says that higher interest rates offer less room for errors or inaccurate interest rate of return predictions. That causes organizations to spend more time conducting their diligence, which in turn lengthens the amount of time it takes to complete a deal. Additionally, the number of private equity exits have fallen, limiting the amount of revenue they have to use.
“We’re seeing higher costs of capital right now and valuations are down (in certain sectors),” Berent said. While valuations remain higher for many healthcare and technology organizations, many other industries have seen relatively flat valuations over the last few years.
According to a June 2024 Pricewaterhouse Cooper mid-year report, a decrease in M&A activity over the past two and a half years has created pent-up demand, especially with private equity forms. Some investors are seeking M&A activity as a way to “accelerate growth and reinvent their businesses at a time of dynamic change,” according to the report.
The reasons? Artificial intelligence is impacting business models and is in demand itself. Additionally, executives have a” desire to accelerate their companies’ growth in a low-growth economy,” which according to the report is resulting in higher demand.
Larson says there’s been an “unprecedented amount” of capital sitting on the sidelines that has been waiting to be deployed over the last 18 months after a robust 2021-2022 coming off the initial pandemic shock. That excel capital was caused by significant public equity fundraising in recent years and a record amount of “dry” capital.
He feels that despite the fact that geopolitical uncertainties can also depress transactional activity, the pending presidential election and wars in Ukraine and the Middle East are having little immediate effect.
“It seems as if the market has assimilated to the current (economic and geopolitical) conditions,” Larson says. “Generally, when you have unfamiliarity that impacts risk and threatens return on investment. But we’re not seeing that now.”
Berent though believes the pending presidential election is one of many factors motivating companies to take a wait-and-see approach. The uncertainty of the next president and which party controls Congress leads to some fear because corporate tax rates could be affected over the next four years.
Even more importantly there is more structure needed in transactions today, Berent said. Equity rollovers are more common, which is causing the need for greater creativity.
“Whenever you have a (merger or acquisition) there’s an expectation of a certain rate or return,” Berent said. “You have to get more creative to get that.”
Automotive transactional activity is steady and growing, particularly as some suppliers are more leveraged that their lenders would prefer, Larson said. There is pent-up demand there given the preference some firms have for consolidation, he adds.
As Berent indicated, technology also remains an active industry. Larson said Honigman is active in multiple SaaS related tech deals with firms in India. Artificial intelligence is also creating a buzz in the M&A space and Larson believes more “winners” in that sector will be revealed in the coming months and years.
“Lower middle market private equity firms right now have more ability to take on deals,” Larson said. “It’s also apparent that many buyers are willing to pay premiums for a deal they like. We’ve seen some strong price deals recently.”
It’s important for potential sellers to consider resolving any uncertainties when looking to maximize the value of their assets in any transaction, Larson says. By doing that, they will be rewarded.
“You want to do your prep work before taking a company to market,” he says. “Engaging with the right professionals and cleaning up any challenges you’ve faced will allow you to get a better price. You’d be surprised how many clients we work with that lose out financially because they didn’t clean things up.”
Berent is confident that 2025 will be an active year for M&A both in Michigan and nationally. He said there is money on the sidelines that firms want to invest in and that the cost of capital in many industries has fallen. The expectation of slightly lower interest rates will help as well.
“You’re going to get a higher internal rate of return in many cases,” Berent said. “And you’re getting rid of some uncertainties like the direction of interest rates and this year’s election. I expect a big year (in 2025).”
The original article is available on the Corp! Magazine website: Experts Say Mergers & Acquisitions Market is Poised for 2025 Comeback.
Bryan Berent is Managing Partner and co-founder of Blue River. Bryan brings over 20 years of expertise to small to mid-size business clients, and has deep experience in analyzing the financial, operational and investment components of businesses. He holds an MBA, with honors, in Corporate Finance and Corporate Strategy, and a B.A. in Accounting and Statistics, from the University of Michigan. Bryan’s full bio is available here.
About Blue River
Blue River Financial Group is a middle market merger and acquisition advisory firm. We assist corporations, private equity groups and individuals in the sale and acquisition of businesses and have completed assignments in multiple business segments. With over 20 years of experience spanning across 50 global industries, Blue River provides a suite of services to middle market clients including corporate development, private equity support, valuations, and transaction consulting, placing a premium on relationship-centered transaction counsel and client focus.
